Entries Posted in Mail Processing & Transportation

If you’re a shipper, you may have noticed your fuel surcharge fees aren’t going down in step with the declining price of oil. That’s because both FedEx and UPS tie their fuel surcharges to the price of diesel, which hasn’t dropped as far or as fast as gasoline prices. Furthermore, both shipping giants recently adjusted how they calculate fuel surcharges, resulting in surcharges that won’t drop as much as they would have under the previous calculation. In some cases, fuel surcharges are even going up.

Fuel surcharges are common in the transport industry, from taxis and airlines to moving and delivery companies. Many of these industries instituted fuel surcharges to smooth out costs when fuel prices were skyrocketing. But in times of low fuel prices, like now, customers see these surcharges as a blatant money-grab.

Right about now, you may be noting the U.S. Postal Service doesn’t have a fuel surcharge. It also didn’t go all in on dimensional weight pricing (See our previous blog). And it’s not likely to chase the next big thing in pricing: “surge” or “peak” pricing. For the 2015 holiday season, UPS said it plans to follow the Uber model and hit shippers with “peak” prices on its busiest days. This comes after UPS said it experienced higher-than-anticipated 2014 peak season expenses. FedEx is expected to follow suit. For consumers, this could mean the end of free shipping, at least on last-minute orders around the holidays.

So, the Postal Service might look even more attractive these days with its relatively straightforward, consistent pricing. Of course, the Postal Service isn’t a public company, so it’s not under the same pressure to deliver profits as UPS and FedEx are. But customers are not too interested in the whys and wherefores – they just want low-priced, reliable, fast delivery.

Do you think the Postal Service is well-positioned to lure away commercial package business from FedEx and UPS? Does the lack of a fuel surcharge put the Postal Service at any kind of a competitive disadvantage? Or is it only advantageous? Do you see the Uber surge or peak pricing model getting a foothold in other industries?

Turns out the U.S. Postal Service isn’t just about collecting and delivering mail. It also has an essential role in the middle. Sorting and long-haul transporting, that is.

That may run counter to the arguments of those who believe the Postal Service could be more efficient if it focused only on collecting and delivering mail (also known as first mile and last mile) and let private companies take over sorting and long-distance transporting (the middle mile). The argument has gained traction among some stakeholders and observers, but our new white paper – The First and Last Mile Strategy: A Critical Assessment – says the opposite may be true.

With the Postal Service beset by financial challenges, anything that might improve efficiency and the bottom line merits consideration. But outsourcing mail processing would be a pretty radical measure, not to be taken lightly. That’s why we asked Dr. John Panzar, a noted expert in postal economics, to look at the economic implications of the Postal Service completely abandoning mail processing and focusing exclusively on collection and delivery. We asked him to look only at letters and flats because parcels constitute a different market.

Dr. Panzar developed a theoretical model based on key economic principles and found that overall efficiency would likely decrease should private companies take over the middle mile. Mailing costs, in turn, would likely go up for postal customers. The only winners would be the companies sorting and transporting the mail, but their combined gains would be less than the losses to the Postal Service and customers. Simply put, the Postal Service’s participation in mail processing is necessary for overall efficiency.

Like all theoretical models, Dr. Panzar’s relies heavily on particular assumptions that are open to challenge. Still, his intriguing conclusions invite thoughtful discussion and debate. So, what do you think? Should outsourcing the middle mile be studied further? Do Dr. Panzar’s findings surprise you? What other ways could the Postal Service gain efficiencies?

What should the postal vehicle of the future look like? The U.S. Postal Service recently put that question to its carriers and vehicle maintenance personnel and is currently reviewing the feedback. It’s an important question because the delivery fleet is aging and the Postal Service needs to quickly replace it. In fact, our recent audit on the topic found the current fleet can only meet delivery needs through fiscal year 2017 – and that assumes no unexpected decrease in vehicle inventory or increase in the number of motorized routes.

About 142,000 long-life vehicles (LLVs) out of the 190,000-vehicle total delivery fleet are near or have exceeded their expected service life. Replacing these aging vehicles is daunting, particularly given the Postal Service’s financial constraints.

But fleet replacement isn’t just a major challenge; it’s also a big opportunity. Because the LLVs are up to 27 years old, they aren’t as fuel efficient as newer models. They also lack many of the safety features now considered standard for vehicle fleets, such as back-up cameras, front airbags, and anti-lock brakes. The next generation of vehicles can incorporate the latest safety and environmental bells and whistles, which will protect employees, cut down on fuel costs, and help the Postal Service meet its sustainability goals. Also, given the growth in packages, new vehicle designs could address the challenges of larger and irregularly shaped items.

The Postal Service has a short- and long-term vehicle fleet acquisition strategy, but we found the plan lacks details such as vehicle specifications and green technology features. Also, despite 3 years of effort, the plan has not been approved or fully funded due primarily to the Postal Service’s lack of capital. Given the urgent need to upgrade the fleet, we are encouraging the Postal Service to make some incremental purchases while formalizing a more specific long-term plan for the next generation of LLVs.

What are your thoughts on future postal vehicles? What should they look like? What safety and environmental features or other technologies would you like the Postal Service to add?

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